Business briefs
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Walmart grows more optimistic about 2024
NEW YORK | Walmart had another quarter of strong sales that topped almost all expectations with its comparatively low prices proving a powerful draw for millions who have struggled with rising costs for housing, groceries and almost everything else.
The nation’s largest retailer raised its full-year outlook and executives said their customers may still be holding out for deals, but they’re not seeing any signs that they’re fraying.
“So far, we aren’t experiencing a weaker consumer overall,” CEO Doug McMillon told industry analysts Thursday.
Evidence of a resilient U.S. consumer is apparent across the entire retail sector.
The U.S. reported Thursday that Americans stepped up their retail spending last month in the largest leap in a year and a half. At least on Thursday, that helped ease concerns that a sustained campaign by the U.S. Federal Reserve to cool spending with higher interest rates may have gone to far and damaged the main driver of the U.S. economy, the consumer.
Walmart is among the first major U.S. retailers to report quarterly results and provides a peek into how Americans are feeling about their spending power, which came into question recently after hiring by U.S. employers fell surprisingly hard in July and the unemployment rate rose for the fourth straight month. The strong U.S. economy has been a main driver of global economic growth and the U.S. jobs market has given Americans the financial wherewithal to keep spending.
Yet the July hiring data that shook markets has been repeatedly offset by broader economic trends pointing to a steadily improving environment for both consumers and retailers.
The Labor Department said Wednesday that year-over-year inflation last month reached its lowest level in more than three years, another hint that the worst price spikes in four decades are fading and setting up the Federal Reserve for an interest rate cut in September. That doesn’t mean prices overall are falling, but wages and the cost of living appear to be coming more inline after the pandemic skewed the economy.
Walmart Inc. reported earnings of $4.5 billion, or 56 cents per share, in the three months ended July 31. That compares with $7.9 billion, or 97 cents per share, in the same period last year when it booked big investment gains. Adjusted per share earnings were 67 cents, or 2 cents better than Wall Street had expected, according to FactSet.
Sales rose nearly 4.8% to reach $169.33 billion, also beating expectations.
Comparable store sales — which include online and stores open for the past 12 months — rose 4.2% in the U.S. That compares with 3.8% in the first quarter, and 4%, in the fourth quarter
Global e-commerce sales rose 21%, matching the first quarter’s pace.
The number of transactions and the average amount customers spent during each of those transactions at Walmart was higher in this quarter than it was during the same three months last year.
And in a potentially encouraging shift, Walmart said sales of discretionary items like clothing were flat to very slightly positive. Americans for two years have maintained a laser-like focus on the essentials, taking a pass on goods that are not absolutely necessary, and spending that money instead on groceries and other basics.
John David Rainey, Walmart’s chief financial officer, told The Associated Press in a phone interview that the improvement was a result of several factors: deflationary prices in general merchandise, which helped attract more shoppers, and improved offerings on the shelf from Walmart. Rainey cautioned that shoppers are still choosy and they’re gravitating more toward store label goods and waiting for sales.
In July, Walmart launched its biggest store-label food brand in 20 years in terms of the breadth of items, hoping to reach younger customers who are not loyal to grocery brands and are seeking to cut their grocery bills. Walmart said it expects to have a total of 300 products under the Bettergoods label by the fall, ranging from frozen foods to coffee and chocolate.
Grocery prices, however, have remained stubbornly high, Rainey said.
Walmart has stepped up discounts and during the most recent quarter it had 7,200 price rollbacks, a 35% increase.
For back-to-school, Walmart retooled its 30-year-old brand called No Boundaries. to cater to Gen Z customers. The retooling of the No Boundaries label is part of a strategy to get customers to think of Walmart as a place to buy cool clothes, along with groceries.
For the year, Walmart said it now expects earnings per share to be in the range of $2.35 to $2.43. That’s up from its previous estimate of $2.23 per share to $2.37 per share. Analysts projected $2.44 per share, according to FactSet.
The retailer is projecting annual sales to be up anywhere from 3.75% to 4.75%. It had previously expected sales would rise 3% to 4%.
Shares of Walmart Inc., based in Bentonville, Arkansas, jumped 7% Thursday.
Starbucks is giving its new CEO a huge pay package
Starbucks’ incoming CEO could make well in excess of $100 million in his first year with the company under an incentive-laden contract, and he will not be required to relocate from his home in California to Seattle, the home of the global coffee giant.
Starbucks announced on Tuesday that Brian Niccol would become its chairman and CEO, taking over from Laxman Narasimhan, who stepped down abruptly after spending a little more than a year as the company’s top executive. Niccol will become Starbucks’ chairman and CEO on Sept. 9.
Niccol is among the mostly highly sought after corporate executives after establishing a track record of success in turning around companies that have hit a rough patch, including Taco Bell and, most recently, Chipotle.
Niccol took the top job at the California chain in 2018 when Chipotle was being roiled by a series of foodborne illness outbreaks that had sickened more than 1,000 of its customers over several years.
Revenue at Chipotle has nearly doubled since his arrival after he energized product innovation and at the same time, instituted employee benefits like a program that pays employees’ college tuition costs at certain schools.
Starbucks is counting on Niccol to revive fading sales and re-establish the company as a destination where customers are willing to pay premium prices for its products.
In a filing with the Securities and Exchange Commission late Wednesday, Starbucks said that the 50-year-old Niccol will receive a cash bonus of $10 million as well as $75 million in equity to make up for what is being forfeited by his abrupt departure from Chipotle. The equity component of his pay package will vest over time and is contingent on meeting performance targets.
If Starbucks meets those targets and other goals, his pay could easily surpass $100 million in his first year.
Niccol’s annual base salary will be $1.6 million. He’ll also have an annual cash incentive opportunity at a target of 225% of his base salary and a maximum of 450% of base salary. If he achieves the maximum incentive, it would be about $8.8 million.
Starting in fiscal 2025, Niccol will be eligible to receive annual equity awards worth up to $23 million.
Perhaps just as notable, Starbucks is not requiring that Niccol relocate to Starbucks headquarters in Seattle, saying he can remain in Newport Beach, California, where he currently lives and where Chipotle is based.
According to a regulatory filing, Starbucks will help create, with assistance from Niccol, a small remote office in Newport Beach and the company will hire an assistant for Niccol at that location.
Niccol will commute to Seattle as needed, as well as embark on any other business travel that’s deemed necessary.
Starbucks Chief Financial Officer Rachel Ruggeri is serving as the interim CEO until Niccol arrives in early September.
Shares of Starbucks were little changed Thursday. They surged 20% when Niccol’s appointment was announced earlier this week.
U.S. unemployment claims fall 7,000
to 227,000
WASHINGTON | The number of Americans applying for unemployment benefits fell last week, another sign that the job market remains resilient in the face of high interest rates.
Jobless claims dropped by 7,000 to 227,000 last week, the Labor Department reported Thursday. The four-week average of claims, which smooths out week-to-week ups and downs, fell by 4,500 to 236,500.
In the week that ended Aug. 3, 1.86 million Americans were collecting jobless benefits, down by 7,000 from the week before.
Weekly filings for unemployment benefits, which are a proxy for layoffs, remain low by historic standards. From January through May, claims averaged a rock-bottom 213,000 a week. But they started rising in May, hitting 250,000 in late July and adding to evidence that high interest rates are taking a toll on the U.S. job market.
But claims have since fallen two straight weeks, dispelling worries that the job market was deteriorating rapidly rather than just slowing.
“Claims calmed down and their recent rise appears to be just a blip, not a fundamental shift in the labor market,’’ said Robert Frick, economist at the Navy Federal Credit Union.
The Federal Reserve, fighting inflation that hit a four-decade just over two years ago, raised its benchmark interest rate 11 times in 2022 and 2023, taking it to a 23-year high. Inflation has come down steadily — from 9.1% in June 2022 to a three-year low of 2.9% last month. Despite higher borrowing costs, the economy and hiring kept cruising along, defying widespread fears that the United States would sink into recession.
The economy is weighing heavily on voters as they prepare for November’s presidential election. Despite a solid job market and decelerating inflation, Americans are still exasperated that consumer prices are 19% higher than they were before inflation started to take off in 2021. Many blame President Joe Biden, though it’s unclear whether they will hold Vice President Kamala Harris responsible as she seeks the presidency.
Lately, higher rates have finally seemed to be taking a toll. Employers added just 114,000 jobs in July, well below the January-June monthly average of nearly 218,000. The unemployment rate rose for the fourth straight month in July, though it remains low at 4.3%. Monthly job openings have fallen steadily since peaking at a record 12.2 million in March 2022. They were down to 8.2 million in June.
As signs of an economic slowdown accumulate and inflation continues to drift down toward its 2% target, the Fed is expected to start cutting rates at its next meeting in September.
Average rate on a 30-year mortgage ticks up to 6.49%
The average rate on a 30-year mortgage edged higher this week, holding close to its lowest level in more than a year.
The rate rose to 6.49% from 6.47% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 7.09%.
After jumping to a 23-year high of 7.79% in October, the average rate on a 30-year mortgage has mostly hovered around 7% this year — more than double what it was just three years ago.
The elevated mortgage rates, which can add hundreds of dollars a month in costs for borrowers, have discouraged home shoppers, extending the nation’s housing slump into its third year.
Mortgage rates have been mostly easing in recent weeks as signs of waning inflation and a cooling job market have raised expectations that the Federal Reserve will cut its benchmark interest rate next month for the first time in four years.
“In 2023, the 30-year fixed-rate mortgage nearly hit 8%, slamming the brakes on the housing market,” said Sam Khater, Freddie Mac’s chief economist. “Now, the 30-year fixed-rate hovers around 6.5% and will likely trend down in the coming months as inflation continues to slow. Lower rates are good news for potential buyers and sellers alike.”
The rate on a 30-year mortgage is influenced by several factors, including how the bond market reacts to the central bank’s interest rate policy decisions. That can move the trajectory of the 10-year Treasury yield, which lenders use as a guide to pricing home loans.
The yield, which topped 4.7% in late April, was at 3.93% in afternoon trading in the bond market Thursday, following strong reports on U.S. retail spending and unemployment benefits claims.
Home shoppers and homeowners eager to refinance have been encouraged as mortgage rates have eased back to 14-month lows. Applications for home loans climbed nearly 17% last week, according to the Mortgage Bankers Association. Much of that increase was fueled by a 35% surge in applications by homeowners looking to refinance their existing home loan.
“While the refinances remain strong, we expect that that purchase market will continue to gain momentum as mortgage rates continue to fall,” said MBA CEO Bob Broeksmit.
Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also ticked up this week, pushing the average rate up to 5.66% from 5.63% last week. A year ago, it averaged 6.46%, Freddie Mac said.
Most economists expect the average rate on a 30-year home loan to remain above 6% this year. That may not be enough for many prospective homebuyers in the face of record-high home prices and a shortage of properties for sale in many markets.
Consider, roughly 86% of all outstanding home mortgages have an interest rate of 6% or below, and more than three quarters have a rate 5% or lower, according to Realtor.com.
That means “rates will need to continue to trend lower to see a fully re-energized housing market,” said Hannah Jones, senior economics research analyst at Realtor.com.
Still, if rates ease further and the supply of homes on the market keeps rising, that could set the stage for improved sales in coming months.
“The summer is typically the busiest time of year in housing, but this fall may see an extra boost from shifting housing conditions,” Jones said.
—From AP reports
